Peso weakens anew

The peso extended its losing streak to nine days shedding another 5.5 centavos to the dollar amid the hawkish stance of the US Federal Reserve.

The local currency closed at 50.345 to $1 yesterday from Wednesday’s

50.29 to $1. The peso has been weakening against the greenback since June 9 and closed at its lowest level in more than three months since it closed at 50.36 to $1 last March 14.

Meanwhile, the Bangko Sentral ng Pilipinas (BSP) kept its benchmark interest rate unchanged amid a lower path of future inflation as well as firm domestic economic activity.

After presiding over his last policy rate-setting meeting as chairman of the Monetary Board, BSP Governor Amando Tetangco Jr. said the board decided to maintain policy rates at 3.5 percent for the overnight lending facility, three percent for the overnight reverse repurchase facility, and 2.5 percent for the overnight deposit facility.

The outgoing BSP chief added the central bank also left the reserve requirement ratios unchanged at 20 percent.

Tetangco, who is scheduled to end his unprecedented two six-year terms on July 2, said the decision was based on assessment the inflation environment remain manageable.

“Inflation expectations also continue to be firmly anchored to the target over the policy horizon,” he said.

He added the assessment of risks to the inflation outlook remains tilted toward the upside.

“While there may be potential transitory impact of the proposed tax reform program, the social safety nets are expected to mitigate the resulting inflationary pressures. The long-run effects on productivity will improve overall supply and further dampen inflation,” he said.

Inflation eased to 3.1 percent in May from 3.4 percent in April, bringing the average at 3.1 percent in the first five months of the year, within the two to four percent target set by the central bank.

Tetangco said risks to external demand remain tilted to the downside despite the fact prospects for the global economy has improved.

While global economic conditions remain challenging, he said prospects for domestic economic activity continue to be firm owing to buoyant consumer and business sentiment, ample liquidity and sustained credit growth.

“In addition, the Monetary Board has considered the potential impact on global financial market conditions of the ongoing monetary policy adjustment in the US, noting that maintaining monetary policy settings at this time would allow the BSP to continue to assess evolving economic developments and calibrate its policy tools as appropriate,” he said.

For his part, BSP Deputy Governor Diwa Guinigundo said the Monetary Board has slashed its inflation forecast for this year at 3.1 percent instead of 3.4 percent and three percent for 2018 and 2019.

He pointed out the forecast for this year was lowered as inflation outlook showed the future path of inflation is lower and expectations continue to be in line with the inflation target.

He also cited the robust economic growth despite the slowdown in the gross domestic product (GDP) growth to 6.4 percent in the first quarter from 6.6 percent in the fourth quarter.

Guinigundo added liquidity growth of 11.1 percent and credit expansion of 19.2 percent in April.

The BSP also sees a lower oil price projection of $49.49 per barrel instead of $51.32 this year, $48.17 instead of $50.03 for next year and $49.54 per barrel for 2019.

Likewise, he said the proposed comprehensive tax reform program would have an impact of less than one percent on inflation in 2018 and 2019.